Financial Planning Checklist for Americans Moving Abroad

Written by James Willis

Passport? Packed.

Boarding pass? Booked.

Suitcase? Bursting at the seams.

You’re almost ready to make the leap away from the US – but are your finances prepared for the move?

While most Americans often focus on the practicalities of an international move, many overlook the financial implications. Decisions around taxes, investments, banking and estate planning can have unexpected consequences once you leave the US.

The good news is that many common pitfalls can be avoided with effective planning. In this article, we cover the key financial considerations for Americans moving abroad, along with a practical checklist to help you prepare.

Before You Move

Tax planning review

One of the biggest mistakes Americans make when moving abroad is assuming their current investment structure will work the same in their new home. The reality is that in many countries, investments that are tax-efficient in the US may be subject to unfavourable tax rates or additional reporting requirements. For example, if you move to the UK, you may find that many of your existing ETFs or mutual funds do not have HMRC reporting status. Continuing to hold those funds whilst resident in the UK may mean investment gains on those funds are taxed at income tax rates.

On the other hand, there could be attractive transitional opportunities that could be capitalised upon if planned correctly, such as the UK’s foreign income and gains (FIG) regime. In any case, you should seek tax and investment advice before moving to ensure you are avoiding any tax problems.

Banking arrangements

Holding on to a US-based bank account can be useful, if possible, especially for those receiving Social Security, which normally must be paid into a bank account that can receive US dollars. Additionally, the recent IRS decision to stop issuing refunds via check has reaffirmed the importance of having a US account that can receive direct deposits. One option could be to use the State Department Federal Credit Union, who have historically helped US citizens abroad with banking services.

Aside from banking and checking services, closing your US credit cards or letting them go dormant could also damage your US credit score, which could affect your ability to access credit if you ever decided to return to the US and purchase property or a vehicle.

Investment account review

Many Americans are surprised to find that moving abroad can affect their access to the full suite of investment and advisory services that they once used in the US, but it is unfortunately common for some custodians to deny access to certain services to non-US residents. For example, it is common for fund providers to disallow you to make further purchases of US Mutual Funds if you don’t have a US address, and it is common for platforms to disallow ongoing access to products such as lines of credit.

If you are working with a domestic US advisor, you should check that they have the requisite regulatory permissions to continue providing advice in your new country of residence to ensure they can continue to advise on your cross-border financial affairs.

Insurance review

Life insurance coverage can become complex if you move abroad. Some insurers or policy conditions in your existing US policy may not allow you to retain your coverage if you move to certain countries. However, you should also be cautious about taking out life insurance in your new home as this could also create unintended tax consequences and reporting obligations if not done correctly, which could significantly erode the benefits of the policy. Any conversations about insurance planning should be done in tandem with a tax expert in your new country to understand how best to structure your protection.

Estate planning review

Moving countries will almost certainly require a review of your existing estate planning provisions. Your incumbent estate plan may be foolproof if you remained a US resident, but it may quickly become faulty if you pass away abroad.

An example of a common US-centric probate planning measure is the Transfer on Death (TOD) designation, which is often added to brokerage accounts to skip probate on the death of the account holder and automatically distribute assets per state legislation. Whilst this is a great tool for US residents, it can create unintended complication elsewhere in the world if the TOD distribution contravenes the estate administration or tax rules of the country in which you live.

During Your First Year Abroad

Tax reporting requirements

For Americans who have never lived outside of the US, the concept of citizenship-based taxation is something which routinely catches out even the most financially sophisticated emigrants. Regardless of where in the world you live, you are still considered liable for US taxes if you are a US citizen or Green Card holder. Fortunately, many countries have a double tax treaty with the US which governs how your two tax systems interact with each other. Unfortunately, double tax treaties are rarely designed to be easy to read, and there is often significant room for interpretation or error in their application. It is best to consult a tax professional who is well seasoned in advising US expats living in your chosen country.

FATCA and FBAR compliance

The Foreign Account Tax Compliance Act (FATCA) requires non-US financial institutions to report information on their US-connected customers to the IRS. Additionally, if your non-US financial accounts exceed $10,000 cumulatively at any point in a calendar year, you will need to report those accounts annually via a Report of Foreign Bank and Financial Accounts (FBAR) disclosure. Many non-US financial institutions do not readily provide the information required for FBAR reporting, so a specialist wealth manager or tax adviser can help by sourcing that information on your behalf.

Currency management

Living across multiple jurisdictions and investing overseas means currency management becomes a crucial part of an effective financial plan. You should carefully manage the risk posed by foreign exchange movements, especially if you expect to need to access your investments in a foreign currency. If you are exchanging currency frequently, you should also pay attention to the hidden costs involved – even if a service claims not to charge commission, you may be losing out due to the difference between the rate offered by your provider and the market rate.

Long-Term Planning Considerations

Retirement planning

Accessing savings held in a 401(k) plan can be difficult for non-US residents, as some custodians are unable to process distributions in non-US dollar currencies. If you have already closed your US bank accounts, it can be even trickier to access your well-earned retirement savings. However, rolling the plan into a Traditional IRA may offer an opportunity to choose a custodian with more appropriate currency distribution options. You should also check how your new home’s tax authority views your retirement accounts, as this can vary between countries.

Investment management

If you plan on remaining an expat long-term and you are looking to make further investments towards your goals, then you should carefully consider the types of investments that you purchase within taxable brokerage accounts. Non-US domiciled collectives, such as EU-based UCITS funds, would likely be treated as Passive Foreign Investment Companies (PFICs) by the IRS, which can carry detailed reporting obligations and harsh tax treatment. You can avoid this issue either by purchasing single stocks and bonds, or by choosing US-based funds that are compliant in your new country.

Estate and legacy planning

Administering an estate across multiple countries can be significantly more time-consuming and complex than settling a purely domestic US estate. For instance, passing away with US assets whilst living abroad would likely require the deceased’s estate to file for an IRS Transfer Certificate. The process to prove the estate has paid the requisite amount of tax requires the estate’s representatives to compile a list of the deceased’s assets at the time of death, which can be complex from an administrative perspective. This often results in a lengthier probate process – in our experience, it can take over a year for a transfer certificate to be issued and assets to become accessible. This can put a strain on the ability of your beneficiaries to meet their ongoing expenses, which can be mitigated with a robust estate plan.

Repatriation planning

Even if your move abroad feels permanent today, many Americans eventually choose to return home – but planning ahead can make that transition simpler and help avoid unnecessary tax costs. For those planning to repatriate after an elongated stay elsewhere, you should review your asset base and tax situation again because there could be opportunities to optimise your position. One common priority for UK residents returning to the US is to sell and/or spend down UK-situated assets like pensions or real estate, as these types of assets will permanently remain within the scope of UK inheritance tax, even if you leave the country.

When Professional Advice Makes Sense

• Multiple jurisdictions: even individual investors with “simple” account types like brokerage and retirement accounts could unintentionally fall foul of complicated tax laws inside or outside the US. Those planning to split time across multiple countries may need specialist advice to ensure they have fully optimised their financial situation across all their chosen jurisdictions.
• Complex finances: certain wealth structures can be extremely complicated to operate effectively outside of the US. Trusts are key examples of this, where investments and distributions need to be coordinated carefully to avoid costs and taxes from ratcheting up over time.
• Business ownership: owning a company through certain US structures whilst living outside the US can lead to a mismatch in how business income is categorised between the two countries, which can create double taxation. Reviewing the ownership structure of your business with tax, legal and investment experts is something which is best done prior to leaving to avoid unintended tax consequences in your new home.
• Significant investments: the detrimental impact that high tax rates can have on your investments can often completely offset any growth offered by capital markets. Fortunately, your household’s tax position is much easier to control than the movements of markets. It is therefore crucial for families with large asset bases to seek advice before moving abroad to ensure they are confident that their position is optimised for their new global footprint.

Moving abroad is about more than booking flights and packing boxes. Taking the time to get your finances in order can help you avoid unnecessary complications and make the most of the opportunities that come with life overseas. To help you stay on track, download our Quick Cross-Border Financial Checklist.

The Legal Stuff

• The information contained herein is subject to copyright with all rights reserved. The document may not be copied, forwarded or otherwise distributed, in whole or in part, to any other party without our written consent.
• Nothing in this document constitutes investment, tax or any other type of advice and should not be construed as such.
• MASECO is not a tax specialist and we recommend that anyone considering investing seeks their own tax advice.
• The views expressed in this article do not necessarily reflect the views of MASECO as a whole or any part thereof.
• This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.
• This document does not constitute a recommendation, offer or solicitation to buy or sell any products or to adopt an investment strategy.

Risk Warnings:

• All investments involve risk and may lose value. The value of your investment can go down depending upon market conditions and you may not get back the original amount invested.
• Your capital is always at risk.
• Fluctuation in currency exchange rates may cause the value of an investment and/or a portfolio to go up or down.
• Certain products which may be used within a portfolio in order to give exposure to particular investment strategies may not be regulated in the UK and therefore will not have the benefit of the protections afforded by the UK regulatory regime.

MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.